senate to consider a report that includes instructions to raise the debt limit. the reason i make that is because i do respect people tremendously. i want to congratulate the judiciary committee in regard to the bill which will help us in the process of having a better product. this issue of the debt limit is an extraordinary measure. that is why would ask the senator to modify his request. >> would the senator modify this request? >> i do not agree with the modification. i think that would be modifying the budget that was passed. >> the objection is heard. >> madam president? >> is there objection to the original request? >> the objection is heard.

>> madam president? >> the senator from arizona. >> madam president. i rise again with the normal and regular order of this body after both sides of the capitol have agreed on a budget we have a proper process to instruct this and have a budget motion to appoint conferees to be bound by a requirement no matter how worthy it is. it is not the way the regular order functions in this body. and for four years, i sat here to bring a budget to the florida senate. we spent many hours on all kinds of amendments and now we can't go to congress unless we agree

not to raise the debt limit. my colleagues in florida believe that the house of representatives, dominated by republicans, is going to raise the debt limit. as my colleague from florida believe that any of those who have been appointed, we have replaced certain restrictions on those that would apply for the other body as well. i do not think of. i don't think that is the way that this body is supposed to function. we are in a gridlock. here we are. for years without a budget. because somebody doesn't want to raise the debt limit, we are not going to go to the conference. that's not how this body should function. the american people deserve a budget. every family in america has live on a budget. here we are, objecting because there is a concern about raising

the debt limit. all i can say to my friends in florida is that the american people don't like it. and i don't like it. most of the colleagues and republicans here don't like it. from budgets, going forward, doing what they are supposed to do. and i would imagine that we would continue to raise this up. reese's motion to move forward. by the way, it is the regular order to construct this. a motion to construct this on the debt limit should be in order. that is the regular order to do it. it is not the regular order to demand certain condition on us. it is appointed by the majority

and the republican leader would place confidence in those countries and to reflect the will of the majority. so i have to say i'm disappointed in the senator from florida and in his objection and demand that we do something that is not in the regular order. >> i yield the floor. >> the senator from florida. >> thank you, madam president. thank you for whom i have great respect. the debt limit something i don't understand the objection four. thing that we there will be a raising of the debt limit. there should be discussion in the context of a broader issue. as a result my don't understand why we can't put it in the we're not going to raise the debt limit. i would also like to say that i do respect his position tremendously and i believe in regular order to the extent that we are talking about procedure.

the problem is that the regular order of washington is giving us a 70 trillion-dollar of debt area i would say that i don't think you can run up this debt without bipartisan cooperation. but i am concerned about is a regular order doing things where the debt limit has been raised consistently without any conversation, but the fact that this government house 40 cents out of every dollar that it filed. never has a generation of leadership my concern is that we do not have trust in washington to me. i don't care who is in charge. but we will not recklessly raised the debt limit of the greatest country on earth without any so we do not think of this nation and the implications it can have on our children. i think you. >> the senator from arizona.

>> appealed to the senator from tennessee. the senator from florida is saying is that if you have an issue, that he feels strongly about it and it has to be included the debt and the deficit, i match my record against anybody trying to eliminate the debt and deficit, including that of the senator order. for now we are about to establish a precedent. if anything is passed with the house or senate, we are free to put certain restrictions on us. if the senator from florida believe that the right way that we should function, then i would suggest to him that most people would disagree with this kind of violation of the regular order.

>> okay. >> the senator from illinois. >> madam president, i am reluctant to break up this conversation of my fellow senator. because they seem to be at odds. if you want to remind all the senators that the senator from arizona, -- we were slapped around for not passing a budget rent budget resolution. >> i would say to the senator from arizona that we have good answers, but not good enough. we passed a budget resolution. it passed by one vote and stayed until the early morning hours to get this done. senator patty murray did a masterful job of putting this together. of course, this is only half the story. the way that this is supposed to work is if it differs between the senate and the house, we come together to work out our differences. how long have we been trying?

how many weeks have we been trying? sixty-one days. we have been begging the republicans and work out our differences if we can. each time we are there, as in this morning, there has been a condition to it. you can sit down and try to work out your differences must agree that time. if you are serious about the deficit and the debt of the united states. in and anyway, it will touch social security benefits. so i think i need a lot of support for that. at the end of the day, if we are serious about the deficit, which is to sit down and work on our differences. house and senate and one senator mccain makes this consent to go

to a conference committee, he is asking for the regular order of business around here. >> i asked my friend from illinois. it makes it perfectly applicable if we instruct this. which is what we are asking for in the unanimous consent agreement. >> on the debt ceiling, for example, we can handle it. that is a regular order of things. >> but the condition, the granting of consent on whatever senator comes to the fourth. that is what we are talking about. >> the senator from tennessee. >> that a president come i yield the floor. >> okay. >> i think my friend from illinois, and i would ask my friend from illinois that is the position you are championing is

the regular order, then why is it that the democrats are asking unanimous consent to set aside this unanimous consent. the only reason is needed is because you are endeavoring to circumvent the regular order. by doing this, opening the door for a procedural trick to raise the debt ceiling with 50 votes rather than 60. >> just checking to make sure my memory is correct on that. what we are trying to do is establish what we are going to for conference. if we go through this regular thing, this is why we are trying

to have unanimous consent come up which i think is part of the republican side. >> i am sorry. i mistaken. it is not a filibuster. but it would call for using the house resolution at 50 hours of debate and another vote go through the regular order of things. >> this includes voting on that. but that is not what the pursuit

here it is. which is why the majority is seeking unanimous consent to set aside the rules. the question i would like to ask. >> it is the regular order of things. and it is the usual and customary way that it works so that we don't have to repeat all over again the debate on the budget resolution. it is not unusual. it is the regular order. >> i would suggest with unanimous consent to be used to circumvent regular order. in particular, the debt ceiling was not obtained in the budget, it was not debated in the budget. it was not part of the budget. the only question is that we could've gone the conference 30 days ago that the democrats have simply agreed not to use reconciliation is a backdoor trick to raise the debt ceiling. this is the intention and why we

are objecting to raising the debt ceiling with an unlimited credit card, and taking hold ether without fixing the problem. >> we have been through this before. the house of representatives threatened not to extend the debt ceiling of the united states and cause severe damage to our economy. family said how could the congress do something as irresponsible as to not to extend the debt ceiling of the united states. this ought to be something that both parties take very seriously as to whether we can jeopardize the full faith and credit of the america. so the notion that the debt ceiling is something that we can casually say that it has been proven extend it makes no

difference. whether it is included in this in terms of the budget resolution remains to be seen. but we could have a motion to instruct us to the debt ceiling. i think that it already then discuss. what i am saying is why in the world are we sitting at a table with democrats and republicans, house and senate. i think most american people say, isn't that why we are in washington? yet we run into these objections >> i would ask my friend at. >> isn't this a little bizarre? this whole exercise we are going through what we are asking to go to conference with the body that is dominated by the numbers of our party. we don't have enough confidence that the majority is not a little bit bizarre? in lieu of what we are talking about, i would be very honest

with my colleague from illinois. we are talking about a minority within a minority. because the majority of my colleagues in the united states senate on the side of the aisle, with motions to instruct, they want to move forward and point these and do whatever the american family has to do in america. that is to have a budget. >> i just wish to speak about this. at this point in time we have passed a senate budget resolution. we were challenged to do it and we did it. it is a close vote. now we want to move to the next logical step and resolve our differences so that we can reduce this. the objection on the other side of the aisle for 61 days to come to an end. >> i would ask my friend again. >> we don't trust our colleagues on the other side of the capitol were in the majority of

republicans. i guess that is what the lesson is that can be learned here. far more importantly than that. far more importantly than that. the american people have been close to 60% of the american people that approve of congress. i go home and have a town hall meeting. and eat a lot, my friends, we don't even have a budget. republicans, democrats, we can't even agree to have a budget. like every american family does. does that contribute to the group pool? the answer is obviously no. so i urge my colleagues and to put some confidence here. and what will be appointed on the other side of the capitol. we are fiscal conservatives. instead of blocking, want to assure my colleagues that a

minority of republicans in the united states senate want to move forward with the budget, which we have spent so many hours in so much effort into achieving. not block it from going forward. >> been president, i salute this >> house members can speak to them. i think it is important that we move to this as quickly as possible. >> been president? >> the senator from virginia. >> associating myself with senator mcclain and senator durbin. this is not this is about

compromise, that the framers established where compromise is necessary to take action. would we allow processing to go for forward so that we can listen to each other, dialogue and compromise. were will we use procedural mechanisms to block processes of dialogue and compromise. senate budget is a very different budget in the house budget. we all have our preferred options. but that way we get to a final budget is to have the senate sit down together and what is a difficult discussion and to compare and find cumbre mice. the senate acted on the 23rd of march by majority vote to pass the senate budget after four years. the effort to object, make no mistake, is fundamentally an

effort to block the processes of compromise. in what was established by the framers, this is the blood keeps the organism alive. the fundamental efforts that are destructive of this institution. so i stand by the motion i have made. i asked my colleague to allow compromise to go for it and thank you. i yield the floor. >> on president? >> the senator from texas he met madame president. we urge this body to trust the republicans. it may be clear. i do not trust the republicans. i do not trust democrats. i think a lot of americans don't trust the republicans and it has gotten within this mess. my wife and i have two little girls at home.

the national debt has grown by over 60%. madam president, what we are doing to our kids and grandkids is a moral. now, i commend the democrats and president obama has been very explicit in raising the debt ceiling and to do so with no conditions whatsoever, just borrowing and burrowing in borrowing money without any structural reform to fix the problem. i think it is a dangerous position, but it is a weak candidate. that is the reason why every day for 60 days, democrats have opposed taking the debt ceiling off the table in this discussion one of the reasons we got into this mess is because a lot of republicans were complicit in this spending spree.

that is why so many americans are disgusted with over five of the. because we need leaders on both sides. my friends from virginia said we need to roll up our sleeves to compromise and work together. please stop bankrupting our country. this issue is very simple. this is a 50 vote threshold. the answer is that we have voted just to raise the debt ceiling because the democrat have a majority of the body and the democrats are explicit that they want to raise the debt ceiling. it is 100% certainty that the debt ceiling will be raised. every republican who here is

really saying, let's give the democrats a blank check to borrow any money that they want no reforms, no leadership to fix the problem. i don't think that is consistent with diverse possibilities. finally, much has been said about the budget. the budget contains nothing about the debt ceiling. the budget does not consider the debt ceiling. when all of us were here all night debating the budget, we did not debate the debt ceiling. western here is whether the majority of the senate will be allowed to boost the debt ceiling, a totally different issue onto the budget. and the reason for doing it. it would allow passing a debt ceiling increase with just 50 votes and i think it would be

profoundly irresponsible. especially for this body to raise the debt ceiling without getting the economy going, getting the jobs back, without stopping the path we are in bankrupting this country. that is what this is about. i yield the floor. >> senator from utah. >> mountain, i would like to follow. the senator from virginia. we need to have this debate. we need a budget. the american people have been without it for four years. it is because we want this debate and we want this issue debated. in public. we have this concern. in other words, as the senator pointed out just a moment ago, there are a lot of issues that we have asked and debated and voted on. we were addressing the budget

resolution, making sure that we have the amendment. at no point during that discussion did we discuss or address or vote on the decision regarding the debt ceiling. that is a separate debate, one that did not come up in connection with the budget resolution. it is a debate that needs to happen. just as the discussion needs to move forward and we need to have a public debate and ultimately a vote with regard to the debt ceiling. so the debt ceiling was not in the buzzer budget resolution. we haven't debated it.

the other side agrees that they will not use budget reconciliation is a mechanism for working a backroom deal to raise the debt limit. the american people expect us to debate this. not in secret, but in public. >> the senator from florida. >> i would like to describe to those watching at home or elsewhere, what has happened here. maybe folks are wondering what this is all about. it is pretty straightforward. the senate did not pass the budget under the leadership of the current majority. we did complain about that and that is problematic. one was not dealing with our debt and economy. weight works is sitting down and

negotiating. what is happening here is that a motion is being made. nobody here is objecting to these negotiations. this process can happen right this very moment. the only thing that we are asking is that part of the negotiation and increase of the debt limit, here's why it's so important. the senator from texas pointed out. let me tell you what the debt limit is. a credit line of the united states. how much money the government is allowed to idle. my fellow senators stand here today and say if you raise this issue, we can stop the process. this is not a trivial objection. i am not asking that the key lime pie be the official high of the united states or a ridiculous thing. this is the debt limit. something that has been called the simple greatest national security problem facing the united states of america by our national security officials. all we are saying is that we

cannot come back from the conference report without increasing the debt limit. because if that happens, it will be a majority here to do it. as the debt limit increases, it has become the a matter of routine. that means we shouldn't just say we will never raise that no matter what. we shouldn't raise it as a matter of routine. the impact this is having on our economy is interesting. by the way, one of the reasons is that i thought could make a difference here. even a minority could make a difference. one day i won't serve here anymore. someday in the future, we will have to deal and what they

inherit is a decision that is made here. i would have answered to answer for that. i'm going to have to explain to them what you do, what you're not doing your in the senate. how could you have allowed us and what did you do to do something about this? my answer cannot be that i follow the regular order. i played along to get along, i went in with what my colleague wanted. the bottom line we can move the conference, we can begin negotiating this very day. all we are asked for is that part of that negotiation is a part of it. it should be related to the entire economy. that is the basis of all objection. if we would offer the same

motion, clearly saying that it cannot include reconciliation to raise the debt limit, we will be in conference with the house is very day. if they fail to do that, we can't move forward. because what we cannot do continue to raise the debt limit without any serious conversation about how we will begin to put our fiscal house in order. this impact of the economy is disastrous. people in america right now are underemployed because of the debt that is scaring people away from investing in our economy and our future. if we do nothing about that, my colleague will be the first generation of americans believe the first-generation warsaw. we are doing some simple but important things for country and i believe if we do that, this can also be an american century.

my hope is that some point today, tomorrow, the next few days we can come to the floor and. ..

as you're all well aware of, it has been a tough week in the southwest. in particular, a tough few days and the fourth district of oklahoma. and today i rise to make mentioned briefly. first, thanks for your prayer and thoughts and goodwill. but should not also a tornado to go through congressman tom quotes district in oklahoma or newcastle room or across the southern part of oklahoma city. congressman cole is now but this because he's in oklahoma addressing the needs have been working with his fellow citizens and community members as they put themselves back together for a straight by an f5 tornado. not only does he represent the

community, he was raised there. his families bury two generations of the cemetery there. so it is a community close to him in many, many ways. the good folks at more and other communities all over the coming days paul themselves back together. the finish sifting through every pile of rubble and make a determination is known not to be saved as the work frantically to do that than the beak of the process laying to rest those that were lost. and put their entire community that together. while many folks are well aware of the import the schema of the federal response, moore is a classic example and in the states were the greatest tragedy in the most tragic loss of life. city government, county

government comes together to work seamlessly to need and recover those beyond help. we in the oklahoma delegation in front for the texas delegation appreciate everything you have and will help you in this effort. that's i.t. out remained of my time, mr. speaker to the gentleman who represents part of that area and north oklahoma city that the great fit district, congressman lankford. >> pajama men from oklahoma, mr. langford is recognized. >> those in the past week with six in my cranberry, two in shawnee, oklahoma on sunday and 24 is that 10, including 10 children, 14 of those. we've been overwhelmed with the people that have come to say we are praying for you that they can make a request this body

take a moment to pause and experience a moment of silence in honor of those lost in the recovery efforts ahead. >> numbers will rise. -- members will rise. [inaudible conversations] >> pajama lady from texas. >> at bay to speak out of order to address what we just talked about, the oklahoma situation. >> also be in order. >> thank you, mr. speaker. as the democratic side of the democratic texas delegation, i

want to join via the republicans that came up with elites in oklahoma oklahoma and simply say this is not a partisan issue. we stand ready to be processed and what we can do to assist those people in oklahoma. i represent dallas. that is closer to oklahoma denison houston. a moderate currency may occur in the american people stand by her people and notwithstanding party. thank you. [applause]

>> about her experiences at boston college, none is more meaningful than education you've received here. you will see as transformational. it literally changes lives. that's why people work so hard to become educated and that is why education has been the key to the american dream. the arbitrary divisions of race and class and culture unlocks every person's god-given potential. all of us do not have equal talent.

>> ben bernanke testified the fed will not begin to tighten stimulus policies until the labor market in u.s. economy show more improvement. mr. bernanke made the remarks made the remarks at a joint economic committee hearing chaired by congressman kevin brady of texas. [inaudible conversations]

[inaudible conversations] >> chairman bernanke, welcome again to the joint economic committee. thank you firsters as chairman of the federal reserve. you deserve great credit for its leadership to calm the financial crisis and take a may. 4.5 years after the crisis, nearly four years after the recession has ended, but said his delegation and extraordinary monetary actions and may continue doing so well into the

future. today the committee to examine how actions have affected jobs and middle-class americans and how when the fed will exit its current accommodative policy. americans economy is improving the faces significant challenges. makes risk-averse economic recovery since world war ii. this recovery and average postwar recovery is large and growing. the private-sector jobs and $1.2 trillion for real gdp. they are predicting a new normal for america were long-term growth is diminished. the congressional budget office recently reduced its estimate for growth and potential gdp from 3.2% to 2.2% pier one percentage point difference may not sound like much, but it is huge. 1% growth god means $30 trillion smaller economy in 2062 in today's constant dollars.

the unemployment rate has declined, which is very encouraging, but there are red flags we shouldn't ignore. 20 million americans cannot find a full-time job. millions more from college graduates to workers in their prime earning years have simply given up looking for work. long-term unemployment remains historically high in the labor force participation rate is that a 35 year low hairballs encouraging since the recession have bottom over 6 million americans have found work. more than not over 8 million americans have been for some food stamps. regrettably one in six americans mu now rely on food stamps to feed their hungry families. with strong earnings are words in the accommodative monetary policy, there's no question the wall street is boring, but main street continues to struggle since the recession ended in real terms, the s&p 500 total

return index has risen by 74.2%. all disposable income per person is only at the end to a mere 2.3%. that means over the last four years, they will dispose low income increased a mere $745 an average recovery since 1960 would have $3604 more in his pocket by now. low interest rates have clearly boosted housing prices in housing construction with positive economic effects. the same low rates are punishing seniors, savers, pension funds and insurance profits. families may feel more secure about their house for less secure about income and job prospects. as the fed on a plenary targeting clients hate is eating has run out. rates are at a mere seven year

low. banks have $1.9 trillion in excess reserves that the fed and nonfinancial corporations have $1.5 trillion more sitting on the sidelines. more liquidity and lower long-term rates cannot solve the problems that are holding back job creation in america. business investment in new buildings equipment and software, which drives so creation remains the missing agreement in this recovery. monetary policy no matter how thoughtfully applied has its limit. they cannot fix for washington budget regulatory and tax policies deterring business investment and jobs that come with it. i keypoint today as i don't question the intention of current fed policy is to fulfill a dual mandate, but i question policy effects on employment and i worry about his future risks. in the near term, they have

become an enabler of bad fiscal policy, on a president palm and congress to avoid the tough and necessary decisions that would clear the roadblocks road products especially for long-term sustainability. rebalancing regulation and economic effects of the presidents affordable care act. in the long-term, this is extraordinary monetary actions pose risks to our economy. first come the fed may be inflating new asset price bubbles. secondly, large excess reserves at the fed could become the fuel for future inflation on economic growth accelerates unless the said act swiftly to contract his balance. third, the feds extensive balance sheet creates incentives for future financial repression and economic turns which means channeling domestic savings to the federal government to lower

its interest costs. since 2009 their purchase an equivalent of all-new issue treasury. the fed cannot raise its target rate for federal funds in my term treasury and losses on the balance sheet. creating uncertainty. the federal will boost the answer straight and the reserves and increase reserve requirements which restrict economic growth and small businesses and families. the financial repression can i redirect the private sector through the fed to the treasury to contain federal interest costs. given these risks, and the limits to monetary policy of the current economic recovery, the federal reserve should begin now to carefully exit from its

extraordinary monetary actions and return to a more project to bowl will space monetary policy that focuses on maintaining the purchase power over time. that will lessen uncertainty and from the best long-term foundation and maximum economic growth. today we intend to explore the exit strategy and timing in detail. chairman bernanke, i look forward to your testimony nailed the vice-chairman of the committee, senator klobuchar. >> thank you very much, chairman brady. thank you for putting together the hearing. we have very good attendance, chairman bernanke. i look forward to your testimony and your thoughts on the short term and long run issues facing our economy. as you know, the economy is that of private-sector jobs for 38 straight months. during that time 620 million

have been created. key economic indicators are showing some strength in the housing market is recovering. the realtors in my office for minnesota last week was the first time they have miles on their faces in a couple of years. credit conditions are improving, but we all know is chairman radius pointed out there's a lot more work to do. i hope this is here and will allow us to talk about potential solutions that can move our country forward and because of the fed's objectives to the nation's monetary policy, maximum employment and stable prices eager to hear your thoughts on what the fed is doing to stimulate lending and economic activity. one issue i know we are concerned about is what's going on in congress and we would have more tools to move this economy forward. i was pleased with the immigration reform bill passed with the strong bipartisan vote last night.

that's one example is the lack of skilled workers in addition to our own training we need to do for science and engineering math and technology in improving the work on comprehensive tax reform as well as bringing down the debt and getting our fiscal house in order and i wanted to focus on that for a minute. in the past two years congress has made some progress in reducing the deficit. we have achieved about 2.4 trillion deficit reduction and deficit reduction and look over 4 trillion which is one goal set out by a number of economists is in our grasp over the next 10 years. last week the budget office reported that deficit will fall to 642 billion, which is $200 million less million dollars less than what the cbo projected to go. the better numbers reflect goodness in housing a larger than expected increases in tax revenue. i believe their best and

ugliness numbers to be a mistake and were closer to reaching a new deficit agreement that many people believe when you look at the numbers that the end of the year to get a deal done i believe that the budget senate passed, which i voted for is a good approach, but everyone is open to some compromise. the senate approach is balanced with targeted spending cuts to replace sequestration and new revenues from closing loopholes in any wasteful spending in the tax code would stabilize their debt to gdp ratio at around 70%. i feel strongly we should be going to conference committees in regular order with these two budgets, senate and the house and get this done. last night senator mccain and

senator carl jay. he used to chairman key too much too soon could lead to our economy. i remember that well for any woman in labor is a meaningful phrase, a sharp contraction. but it's one of the reasons i believe the deficit reduction must be paired with economic growth. our ultimate goal is to simply a balanced budget. it's a budget that his balance. a server towards the goal we must avoid a repeat of the debt ceiling debacle from the summer of 2011 rattled financial markets lead to a downgrade of the u.s. credit rating and unnecessarily harmed our economy. when asked about the debt ceiling showdown in the fall of 2011, you answered bluntly it's no way to run a railroad. i agree with us to better this time. we have some breathing room now because of this change was that

dad, but we must continue to press policy that will help the economy, immigration reform. a long-term farm bill hobbs at the sector of our economy to look at the senate in the next two or three weeks. work skills training for her own students, regulatory reform, streamlining regulation. congressman paulson and i have worked on the medical device industry trying to make those approvals go quicker. comprehensive tax reform. part of this of course is also federal reserve policy. since the financial crisis began in 2007 the fed is use many tools to bolster our economy has cut short-term interest rates near zero since 2008 and taken action to keep longer-term interest rates and mortgage interest rates low. as you and i discussed it makes it hard on sabres have in the past three years americans have saved more than 4% of their

income. that is also taken steps to open policymaking process comics fan communication and provide more specific guidance and enhanced transparency of monetary policy. there has to be an ongoing discussion about changing the goal to focus there has been an ongoing discussion and chairman rady had a good hearing about changing the goal is to focus price stability. in my view now is not the time to take its eye off promoting employment and as the democrats and republicans come together to find solutions and put more americans back to work. the unemployment rate remains at 7.5%, while above the 6.5% level to changing interest rates. as you may know the unemployment rate is significantly lower at 5.4%. the economy.re states that have

at the same time we know inflation is well below the target of 2% at about 1% over the past 12 months. we'd like to hear your views on how this will all work if we see improvements in our economy. i believe we've turned the corner in our economy stronger, but i believe there is so much more work to do. as congressman delaney notes in the hearing that we had on long-term unemployment while the unemployment numbers are getting better, there were still many, too many people unemployed for more than six months and find it very difficult to get back into the job market. while this is all somewhat conflicting is in terms of the long-term unemployed in the numbers are shown improvement, we all know we have more work to do. i look forward to discussing how we can build on this progress. thank you for being here and your testimony this morning.

>> at night to welcome chairman bernanke to our hearing today. also chairman of the federal open market committee. dr. bernanke was chairman of the council of economic advisers and previously served the federal reserve system is a member of the board of governors and the academic advisory panel has a distinguished teaching and educational career. i welcome chairman bernanke and look forward to your testimony. you're recognized, sir. >> chairman brady, vice chair klobuchar, i appreciate this opportunity to discuss the economic outlook and policy. economic growth has continued at a moderate pace so far this year. real gdp is estimated to have risen at an annual rate of 2.5% in the first quarter after increasing during 2012. economic growth was supported by

continuing expansion in demand by u.s. households which was announced that the drive from government spending especially defense spending. conditions in the job market have shown improvement recently. the unemployment rate is 7.5% in april has declined more than 1.5 percentage points since last summer. gains in payroll employment have averaged more than 200,000 jobs per month over the past six months compared with cans of less than 140,000 are in the prior six months. payroll employment has expanded by 6 million jobs since this low point in the unemployment rate has fallen 2.5 percentage points since its peak. despite the improvement, job market remains weak overall. an employment rate is well above its normal level rates of unemployment historically high in the labor force participation rate has continued to move down. moreover nearly 89 people were

hard time even though they prefer full-time work. high rates of unemployment and under employment are extraordinarily costly. not only do they impose hardships on individuals and families, they also damage the potential of the economy as a whole by eroding worker skills and particularly relevant during the season by preventing young people from getting workplace skills and experience in the work place. the loss of output and earnings also reduce the government revenues and increase spending on income support programs thereby leading to larger budget deficits and higher levels of public debt that would otherwise occur. consumer price inflation has been low. the price index for personal consumption expenditures rose only 1% over 12 months ending in march down from 2.5% during the previous 12 months. this low rate of inflation reflects declines in consumer energy prices, but price

inflation further prison services has been subdued. nevertheless measures of inflation have remained stable and continue to run in their ranges seen over the past several years. over the next two years come inflation occurs likely to encounter below the 2% rate the market committee judges can be most consistent with the federal reserve statutory mandate to foster a maximum employment and stable prices. over the four years the economy has been held back by headwinds. some of these had begun to dissipate recently in part because of the federal reserve's family, monetary policy. notably the housing market has strengthened over the past year, supported by low mortgage rates and improve sentiment on the part of potential buyers. increase housing activity is fostering job creation and construction related industries such as real estate brokerage and home furnishings or higher home prices are bolstering

household finances which help support the growth of private consumption. severe fiscal and financial strength in europe by way non-us experts in financial markets have restrained u.s. economic growth over the past couple years. however since last summer's financial condition in the area have improved somewhat which help to mitigate the economic slowdown there and reducing the headwinds faced by the u.s. economy. also credit conditions have eased her loss is comparable in quality strengthens. fiscal policy at all levels of government has been and continues to be a determinant of the economic growth. taking into account discretionary actions and so-called automatic stabilizers was quite expansionary during the recession in early in the recovery. however a substantial part of this impetus by state and local

governments, most of which are subject to balanced-budget requirements and subsequent fiscal tightening at the federal level. notably over the past for your state and local governments have cut civilian employment by roughly 700,000 jobs and total government employment by more than 800,000 jobs over the same period. for comparison, over the four years in the 2001 recession, total employment rose by 500,000 jobs. most recently the strengthening economies improve the budgetary outlooks of most state and local governments they didn't have to reduce fiscal tightening. at the same time fiscal policy has become significantly restrictive and in particular the payroll tax cut, the enactment of increases, the effect of the budget caps of discretionary spending, the onset and declines in defense spending for military operations

are expected collectively to exert a substantial drag this year. cbo estimates the deficit reduction policies of current law will slow the pace of real gdp growth by 1.5 percentage points relative to what it would've been otherwise. in present circumstances are short-term interest rates close to zero, monetary policy does not have the capacity to offset an economic heaven of the magnitude. though near-term fiscal restraint has increased, much less has been done to address the federal government longer-term fiscal imbalances. indeed the cbo projects under current policies the federal deficit and debt as a percentage of gdp will begin rising again in the latter part of the decade amid sharply upward thereafter in large part reflected in the aging of our society and increases in health care costs along with mounting debt service payments.

to promote economic growth and stability it will be essential for fiscal policy makers to put the federal budget on a sustainable long-run path. importantly the objectives of longer-term fiscal imbalances and minimizing near-term headwinds facing the recovery are not incompatible to achieve both goals for congress and administration could consider replacing some of the near-term fiscal restraint now about what policies that reduce the federal deficit in our graduate in the the the near term but longer a. with unemployment well above normal levels of inflation to do, congressionally mandated objectives of maximum employment and price stability requires a highly accommodative policy. normally the committee would provide policy accommodation by reducing the federal funds rate is putting downward pressure on interest rates. however there is another money market rates have been close since late 2008 so the committee has had to use other policy

tools. the first is forward guidance to the likely future target for the funds rate. since december the postman's statement has indicated its ratings for the funds rate will be appropriate at least as long as the employment rate remains above 6.5% inflation between one and two years projected no more than half a percentage point above the committee's 2% longer runkle and long-term inflation expectations continue to be voluntary. this guidance underscores the intentions to maintain highly accommodative monetary policy as long as needed to support continued progress towards maximum employment stability. the second policy totalist large-scale purchases of long-term treasury securities and agency mortgage-backed securities or mbs. these purchases for dollar pressure on interest rates including mortgage rates here

for seven the fomc has the buying securities of $45 billion per month and agency mbs of $40 billion per month. the committee a set of a continuous security purchases until the outlooks of the labor market has improved substantially in the context of price stability. the committee has stated in determining the size come apace and composition of asset purchases that will take appropriate account of the efficacy and cost of such purchases as well as the progress towards its economic object is. at its most recent meeting, and made clear it is prepared to increase or reduce purchases to ensure the stance of monetary policy remains appropriate as the outlook for inflation changes. in considering whether recalibration is warranted, they will continue to assess the progress towards objectives in light of incoming information.

consistent with this guidance regarding federal funds rate that it expects a highly accommodative stance to remain appropriate for considerable time after the asset purchase program ends in the economic recovery strengthens. in the economic environment, monetary policies provide benefits below registry support spending on durable goods such as automobiles and significantly recovering housing sales, construction and prices. higher prices and other assets have increased household wealth and consumer confidence spurring consumer spending and contributed to gains in production and employment. importantly monetary policy has held pressure is kept inflation the longer one objective. the committee is aware of the law. of all interest rates has costs

and risks. even if low interest rates will create jobs and support the prices of homes and other outfits, favors to rely from savings accounts or government bond are receiving low returns. another cost, when we take seriously is the possibility that very low interest rate is maintained for too long could undermine financial stability good for example, investors are portfolio managers to satisfy the full returns may reach real big ticket number credit risk, duration risk or leverage. they are working to address concerns to increase monitoring in a more systemic approach to financial firms in the ongoing implementation of reforms to make the financial system more resilient. recognizing drawbacks of persistently low rates, the fomc seeks economic conditions consistent with a suitably higher rates. unfortunately trine policy accommodation could be highly

unlikely to produce conditions that a premature tightening of policy could leave interest rates and also carry a substantial risk of slowing or enduring economic recovery and causing inflation to fall further. such outcomes tend to be associated with extended periods of lower, not higher interest rates as low as four returns and other assets. because only help the economy can deliver sustainably high rates of return, the best way to achieve higher returns in the medium term and beyond is for the federal reserve consistent with congressional mandate to provide policy accommodation is needed to foster maximum employment and price stability. of course we do so with regard to the efficacy and cost of actions in a way responsive to the evolution of the economic outlook. thank you, mr. chairman.

>> thank you, mr. chairman. we would have to start unwinding qe three. what is the exit strategy and when do you anticipate to begin executing this? >> mr. chairman, the first thing of course would be to wind down eventually the quantitative easing program, yes i purchases. as i said, the program really the flow of asset purchases to the economic outlook as the economic outlook and particularly outlook for the market improves and the real sustainable way the committee will gradually reduce the flow of purchases. i want to be very clear that a step to reduce the flow of purchases would not be anon anon eight mechanistic process of ending the program. whether any change in flow of purchases would depend on the incoming data and assessment of how the labor market and inflation are evolving.

at some point of course the will and the asset purchase program. subsequent to that we will follow the guidance we provided on interest rates. our principal tool will be the interest rate on excess reserves repave, which induce higher money market rates and complement that with other tools we have for draining reserves. we may or may not sell assets. at this point it does not appear it is necessary for us to sell any assets or any mortgage-backed securities to exit in a way that doesn't endanger price stability. there are a number of steps currently discussing further exit strategy we hope to provide more information going forward, but we are certainly confident we can exit over time in a way that will be consistent with their policy objectives.

>> you anticipate securities rolling off the balance sheet before you begin selling securities themselves? >> as i said, we could normalize policy by simply letting securities rolloff and i think there's advantages to doing that. for one it wouldn't disrupt america so much. it would avoid as much irregularity in fiscal payments to the treasury. but we will see ultimately in the long run a desire to get back to a predominantly treasury security portfolio. again, in the exit process allowing assets to rolloff would be sufficient to bring us to a more normal balance sheet within a reasonable period. >> what are the benchmarks are looking at to begin this process? >> we are looking at -- we are trying to make an assessment of

whether or not we have seen real and sustainable progress in the labor market outlook and this is a judgment the committee will have to make. if we see continued improvement and have confidence that it's going to be sustained, and the next evening speaker take could take a step down inner purchases. it would not mean we are automatically aiming towards a complete wind down, rather that can be that to see how the economy evolves in either raise or lower are purchases going forward. again, that is dependent on the data. if the outlook for the labor market improves and we are convinced it is sustainable on. if the recovery will to falter and without the current level of accommodation is appropriate to delay the process. >> to think it's likely

accidents will begin before labor day? >> it will depend on the data. the key to the program in our previous quantitative easing programs, rekey the total amount of expected purchases and when the total amount was done, we stopped and in some cases stabbing was premature because the economy does not get on a fully self-sustaining project area. the difference in this program is we are buying a flow rate, a certain amount of assets each month in the amount we purchase will depend on how the data comment and how the outlook labor market goes over time. >> how much notice because the market before you start executing the strategy? >> would explain the strategy. the market can see the data as those we can't and we are looking for increased confidence the labor market is improving and improving the sustainable and as we see that, we will

instead to respond to that by reducing the amount of accommodation in a way that is appropriate and maintains appropriate level of accommodation given the economic outlook. >> it's frustrating for years after the recession ended in the economy is in such a weak state, fragile state at this point the patient not to be out of the hospitalcomment on the three have been playing baseball with this case. like the economies in the outpatient room of the fed continues to see turkmenistan on a daily basis, asking are you getting better? my worry is the fed doesn't have the prescription for what ails our economy. a year ago the fed made clear it wouldn't set and employment target rate because it's generally affected by nonmilitary fact yours. your unwinding of the kiwi is

based off the least control over. what do we make of that? >> mr. chairman, first about the slowness of the recovery can be explained by a number of import headwinds, including the aftermath, europe, problems with the housing market in the effective fiscal policy the last few years has been a significant heaven to recovery rather than a supporting tailwind. i would submit without monetary policy aggressive actions this recovery would be much weaker than it has been and if you compare our recovery to that of europe and other advanced industrial economies, it looks relatively good. with respect to employment, the monetary policy cannot influence the long-term level of unemployment and that is correct. what we try to address here is a cyclical gap that we see currently the economy operating

below what it's capable of operating at to many people who normally would have worked in monetary policy can put people in the short run. increasing potential grows as you mentioned earlier is not the fed's job. that's the private-sector job in in congress' job in terms of things like the tax code, investment in infrastructure, training, things that create more growth potential. >> thank you. monetary policy has limits. i have yet to meet a business that tells me that those lower long-term rates were lower and there was more liquidity it be hiring more. that is just not happening. it really is fiscal issues from higher tax increases from regulation extraordinarily erred in some to the president in health care law creates a great of uncertainty.

those are the main roadblocks and that is why earlier the fed can begin communicating and announcing, the more put on congress and the white house to address these critical fiscal issues. what the heck am the heck am i recognized vice chairman klobuchar. >> thank you, mr. chairman. i was going to take the analogy the chairman made about the hospital and i was thinking we're out of intensive care thanks in part to the fed's action would probably have to be in the hospital. one of the problems is because of the brinkmanship that goes on in the hill here, we kept having to go back to the emergency room annatto think that helps them they also are not in that kind of long-term healthy way we want to be. i want to start with that. think of the fed is working to spur the economy is just discussed with the chairman at the same time congress is implementing across-the-board spending cuts. i'm one who believes we had with

a mixture of cuts and revenue. some policymakers are pushing for deeper cuts than we see the sequestration. what effect do you think sequestration -- to address this in your opening statement. do you think it would be better to have a long-term budget in place? >> as they talked about in my testimony can the sequestration is only part of an overall pattern by which there's been considerable fiscal restraint in the short-term not involving sequestration but tax increases and elimination to the payroll tax cut and numerous other things, which collectively according to the cbo create quite a bit of headwind for the economy. i fully realize the importance of budgetary responsibility, but i would argue it is not responsible to focus all the restraint on the near-term and do nothing about the long-term, where most of the problem

exists. i don't take a view on tax cuts versus budget spending. that is congress' prerogative. but i do think we would all be better off with no loss to fiscal sustainability or market confidence if we have somewhat less restrained in the near term this year and next year and more aggressive actions to address these real long-term issues, which threatened within a decade or so to begin to put our fiscal budget on an unsustainable path. >> having a more long-term approach with spending reductions as well as revenue changes would be better. >> at the long-term problem and i would advocate looking at it from a long-term perspective. i worry for 10 year window may artificially constrained thinking about the appropriate horizon for budgetary discussions. >> we're not even at the five-year window. i note many of us in the senate

including senator mccain, senator collins that affect the budget conference committee to work on these things that were in now. he tappers chairman brady about the fed's work. there've been proposals to change to a single focus on price stability. how would that change the fed policymaking? >> of course congress said the right to set the mandates anyway at lakes. my own personal view is we have been able to help on the point cited the dual mandate has served since the mid-70s when it was first incorporated. so i would recommend you stay with that. but again, congress certainly has hairball to make that decision if it wishes. i would point out even though we have a dual mandate that inflation if anything is a little bit to the. the dollar has been strong but

not in any way failed on that responsibility. i think it is consistent with our mandate and current policy to maintain price stability and that is what we been achieving. >> the center banks and other countries have a single goal and not the mandate? to have a better track record in terms of inflation? >> no, i don't think so. they often do respond to cyclical conditions as well as inflation this certainly the case in a number of central banks. again, our inflation record as good as really any major central bank and so it's not really been a sacrifice in that respect. >> last month we held a hearing examining the persistently high rates of long-term unemployment during the recession and recovery close to four and 10 unemployed workers have

unemployed workers have been without a job for six months or longer. he made reference in her testimony. long durations of coors have impacts on health and the achievement of the children of the unemployed. are you seen signs of rising structural unemployment and is the high long-term unemployment rate a sign of structural challenges. >> is a significant concern and we are seeing evidence that employers are reluctant to look at people out of work for a long time, u.s.a. appear to be qualified on the assumption if you have at a job for six months he must have something wrong with you. >> a former adviser to mitt mitt romney who spoke here did a very good job talked about that as a scholar that is so difficult for them to go out with this record at this point. >> that's right. we think at this point this is not an irreversible problem, but

we are concerned about the long-run effects on employability of people out of work for a long time and if they're employed again, what will we just beat? slightly lower. >> is the fed able to address structural unemployment problems different order of the better addressed through things we should be doing in congress? >> monetary policy relates to my answer to chairman brady is not able to address long-run employment issues very well. our goal is to address cyclical unemployment primarily. that being said, cyclical unemployment becomes structural unemployment as people lose skills and that is one reason for the urgency of getting people back to work as quickly as possible. >> i mention how low interest rates spur the economy by promoting investment by businesses and households and low mortgage interest rates have helped with this growing housing

market for the first time in many years for lower interest rates as you and i discussed have heard older americans who live on fixed incomes in the safe return from the savings they keep in government funds. what impact are low income is having on u.s. households? >> generally i am very aware of the return issue you just mentioned cannot come back in the second, but it's also true low interest rates are making it easier for people to buy homes, increasing construction jobs and other jobs related to housing, supported automobile purchases and manufacturing and are generally adding both to employment into the wealth of americans. someone that respect this is a main street policy. that is certainly our intention.

with respect to savers, savers have many hats. they are workers. they may own a small business. a healthy economy helps them in those capacities and as i said in my testimony, what we would like to do is get higher returns in a sustainable way. a weak economy will not produce higher returns. in japan, interest rates have been 1% or lower for 15 years. the only ways to get the economy growing so returns will be adequate not just for fixing come instruments, but other kinds of assets as well. >> mr. campbell is recognized for five minutes. >> thank you, mr. chairman. you mentioned about the financial stability concerns driven by the quest for higher yields in some of the risk that could cause in the fixed income instruments. how is your concern about

financial stability concerns increased recently? >> i would say that is increased to bed. we have greatly increased attention to these issues and paid close attention to essentially all asset classes in all major types of financial institutions. we try to ascertain both whether its areas a sign of nesser bubbles and moreover what exposure there is in a sense of high leverage or other kinds of vulnerabilities that would mean is a frothy asset price were to reverse, what implications would that have? we pay close attention to that. in doing our best, though through monitoring, plus a supervision regulation and so on

to address these problems. some issues were discussed in the transformers in your report, which secretary lew has been testifying about. this is an issue and something we take into account is mentioned in the statement look at the cost and efficacy of our program of the most significant cost is concerns. as i mentioned, a weak economy means low interest rates come which creates the same problems and moreover a weak economy means worsening credit quality than that to his financial stability implications. i want to assure you that we are quite aware of this issue and watching very carefully. the appropriate amount of accommodation and exit strategy. >> yesterday the federal reserve

bank president william dudley said the federal reserve should hold onto mortgage-backed security until maturity rather than selling them at whatever point an exit strategy may be necessary. i thought i heard in your responses to chairman brady's questions that perhaps you agree with that viewpoint and when the fed entered the qed a couple years go, that was not the plan for the exit strategy. where are you? where is the fomc on this? >> you are correct we have not updated the exit strategy we put out two years ago which included sales of mbs. the committee has an officially communicated are playing fair, but i will say we've done a lot of work on venice and i personally believe we could exit

without selling any mbs because most of runoff in a reasonable period. but that decision is not yet been taken of it will certainly let people know when it is taken. >> if you do that, aren't you subject to an argument that is outright monetization and that devil ever bad increase in the monetary base this? >> know because modernization needs to finance the government using money. what we plan to do is ultimately get our balance sheet back down to a more normal level and in particular reserves that are nearly 2 trillion seems like a likely outcome there. my point is we can do that by allowing asset, particularly mbs to runoff in assure rather than selling them.

>> and my final 45 seconds here, inc. of japan and yesterday they reiterated their significant buying and has been depreciated 5% against the dollar. how do you see this in terms of the potential currency war, race to the bottom. our a world central banks leading towards trying to end a war here is depreciating currencies? >> a statement with which we agree which monetary policies with the domestic economy are not specifically designed to effect relative exchange rate because whatever effect they have an exchange rates, they affect domestic demand in japan, but more trade and activity around the world. we're supportive of japan's

policy and i would make two observations. one is that under the current plan the japanese bank of japan balance sheet as a share of gdp will be three times larger than the feds to give you a sense of proportion and secondly the actions they've taken seem to a fairly germanic effects both on financial markets, but also so far as we can tell on aspects of the real economy. i take that with a bit more evidence that these policies do have effects on the economy. >> thank you. representative delaney is recognized for five minutes. >> thank you, chairman brady. ..

>> your challenges are the have to continue to use monetary policy to make a difference against employment. while i agree the chairman of monetary policy has limits come in to me that limits always have to be defined in the context of what else is going on and what other actions are being taken.

in other words, the limits of your monetary policy would be different if congress is acting in a different way. my question if we deconstruct the unemployment challenges between typical unemployment and structural unemployment, how do you think about the deck of monetary policy. it requires true long-term policy and issues. how do you describe this between structural unemployment? >> well, respond to your first comment, i think a monetary fiscal mix would be better. it cannot offset what could be happening in the physical sphere.

it is equal parts of the government and not respect. they can influence the long run structural rate of unemployment. especially as it comes structural unemployment. so we are focused primarily on our estimate of cyclical unemployment. in particular, a forward guidance that gives this at 6.5%, which is a point at which we will can utter the tightening process. that doesn't mean that we think that that is the lowest rate that can be achieved. but that we have to begin a process before you get to that lowest rate. or else cool be part of this economy. we have a protection that is affecting condition.

it suggests that structural unemployment is higher than we asked to meet and that we would perhaps raise rates earlier. that is how we protect ourselves. and then, as we think about his questions, as we look at some of the external factors that we are observing, rates are always the low, as we all know, markets are quite strong, without any observation that there is a bubble. balance sheets and much better shape than they have been in your opinion, how much can we allow more flexibility for? and your ability to this?

this policy, on one hand, is slowing the pace. at the same time fiscal sustainability in the long run. i think that combination would be confidence inspiring in the public and markets. it would help to strengthen the economy. it would take some of the burden of monetary policy. i agree that monetary policy is not omnipotent. it would make it easier for us to unwind. >> think you, mr. chairman. >> chairman bernanke you, all jobs are not equal. especially the last 20 or so

years. it is not stem. science, technology, engineering and math. we have the shrinking of middle middle-class, and on top of all that, the lack of real growth in real income. in his speech you gave the other day, i don't attribute this -- the i.t. revolution likely will not generate transformative economic effects that flow from the earlier technological revolution grade as a result, these observers argue that the economic growth will likely not be slower. apparently this is part of the american enterprise institute.

the mismatch of skills sets are so that it also plays a significant role. my point is, if a significant portion of today's employment is structural, how does it, they monetary policy. how does it produce this cyclically or a structurally. if a significant portion of today's long turn on employment is structural, to lease expose ourselves to significant recent price inflation in the near term by continuing a highly accommodative monetary policy. until the employment rate drops below 6.5%. >> my first question is how much is structural. again, no one knows precisely. it has to be a mated and we make

our own estimate and the numbers we have come up with are between 5.2 and 6%. so we have 7.5% unemployment and we are saying there are a couple of percentage points, which can be addressed with monetary policy. the risk probably cannot be addressed with monetary policy. except that this untreated will become structural unemployment. in terms of the longer road, well, the comments that you read her comments about the i.t. revolution. let me be clear that i laid out this, as you mentioned, i think that there a lot of differences between the world today and the world in the 19th century when other inventions were being made. what is important about this is that the differences have to do with the amount of research and

development. the markets make it very profitable. i think that the country, we need to think about our he from that area and try to do a we can to address shortages of some workers, mismatches, assuring how many people can come to the united states and participate in technical innovation. so i think that this is a very important area. i'm the first to admit that it is outside what the fed can do. something that only congress can address. >> thank you very much. i yell back. senator is yielding back. >> i would appreciate your thoughts on this. i continue to worry about the growing inequality of wealth and

income in this country. we have the absurd situation with the top 1%, almost 3% of the wealth of america, the bottom 60% and 2.2% in the last two years almost where the income is at the top 1%. i also worry about concentration of ownership. rigidly with what is going on with wall street. we bailed out the large financial institutions because they were too big to fail. all 10 of them today are larger than where when we bailed them out. there is a growing feeling about many economists, including the president saying that maybe the time is now to break up these large financial institutions, the top six which were equivalent to the gdp of the united states of america. i would like you to comment is now the time to break up large financial institutions which have unbelievable amounts of

assets and in my view, they are in danger of once again being in the position of having to be bailed out. our issue deals with the structure of the debt. as you know, we have 12 regional federal reserve banks, which have nine numbers each. my colleagues may not even notice. as a result of this, three come from the financial institutions themselves and three others are appointed by the financial institutions and three come from appointments by the fed. we have had situations where jamie dimon, the ceo of the largest financial institutions said that we have to regulate wall street. many think that is the fox about

in the henhouse. i will be reintroducing legislation to end what i consider to be an absurdity of the regional friends on trans fats coming from the financial institutions. and the last question that i would like to ask is the fact that from the end of 2007 until april 2013, financial editions have increased the amount of excess reserve held from 1.5 billion to more than 1.7 trillion. one of the reasons why that has occurred is that since 2008, the that has provided interest to keep this money at the fed. so what we see is huge financial institutions getting a small amount of interest. i think it would be much more productive for our economy if that money was outgoing to small

businesses and into the productive economy. the legislation but i'm working on would address this problem by prohibiting by providing interest on the excess reserve and require the fed to impose a 2% fee on excess reserves of the largest banks in america. more than 50 billion in assets. so those are three issues that i'm working on and i would love to have your comments. thank you very much. >> on the left, the amount of excess reserves in the banking system is completely out of control the banks. the banks can pass this around from each other, but the total is just something that they can't do anything about. like a hot potato. the quarter% interest that we are paying him, which we do for technical reasons is not preventing many from going out to small business or any other business. after all, the loans were about four percentage points.

i think about 3.5. so banks can find attractive loans, they can make those won't hold the excess reserves. in addition, getting this would force a -- it would force a to sell very quickly instead of using the tools to tighten interest and avoid inflation. >> that is a very complex question. i think that many of the suggestions to break them up involve relatively small changes were a form of glass-steagall. it is not a solution. because as we saw in the crisis, investment banks separately got into this. i would support this and i think that we are doing a lot of things, which i don't have time to go through with dodd-frank who ordered the liquidation

authority. and other authorities to move in the right direction towards addressing too big to fail. we don't feel that we have addressed that problem, i would certainly be supportive of additional steps. i think that the best direction is probably forcing them to be safer, to have a more level playing field. and with their economic returns, inducing them to break themselves up. >> i am very open to discussing those of you but i want to assure you as strongly as i can that the primary role of the board members is first to give us market insight, business insight, and also letting us help with operational issues. there is a complete and utter

impermeable law between the board members and any other supervisory manner. so there really is no conflict. that being said, i'd you why you would want to have different people represented on that. more union members, for example. that is a perfectly reasonable thing to talk about. >> thank you. >> the primary factors that you're monitoring include the risk of your policies. given that the effective part of this has been muted by a strong deleveraging cycle, how important do you consider these expansion of and what is the date of this. what other factors other than pure inflation measures to look at as essential precursors to an expansion of economic risks due to these policies? >> we have seen a number of

things, which are suggestive that the effects of the financial crisis are being mitigated to some extent. as you mentioned, consumers are deleveraging their burdens and the balance sheets are healthier than they have been. banks are much healthier. we have been doing a stress test and it has doubled this. this is a survey that indicates a willingness to lend and that it is improving. credit availability is improving. so a number of factors lead to the financial crisis seemed to be moderating. that is hopeful for the progress

and the real economy. with inflation, we used parliamentary models, we look at market data, we look at commodity prices and futures prices and we simply don't see at this point and as you look at market indicators, the fact that the united states can brotherson under 3% is indicative of the idea that the best way investors are not anticipating this. they're very attentive to that. at the moment, it seems little bit on the low side. >> when he can businesses are not investing so much? especially long-term interest rate. i don't talk to any businesses that are saying that interest rates need to be lower for us to invest. but at what point -- whether

it's tax increases, the payroll tax, you talked about tax increases at the end of the year, at what point are these on high income earners or is it part of the new taxes associated with the affordable care act. at what point do you see for that it has been in a way that is overall with the slow pace of growth. it would induce them to expand capacity quickly. given the amount that they see, they have been investing. employment growth is probably a little stronger than you would have guessed, given how much gdp and output growth areas. firms don't respond very strongly to interest rates. many literature suggests not.

so indirectly, this is a way that monetary policy is to make capital investment by generating more consumer demand and low interest rates to do affect consumer spending or raise house prices or others and we have been seeing for the last few reports, they have been surprisingly strong and we have seen substantial improvement in consumer optimism. so part of this monetary policy affects investment and we have more demand coming in the door and they will expand capital and labor. >> you see a dragon economy some of the tax hikes that have happened at the end of your? including tax increases, among other things, i'm not pronouncing the desirability of any of those favorite policies.

i'm saying that taking them together, they have the effect of being a dad on economic growth, perhaps more than necessary or thank you, senator. you're recognized for five minutes. >> thank you. sometime earlier, we had a conversation and i asked you the question about why the united states is doing relatively better than neighbors across the sea. he said because we had the best looking course. i'm wondering where the courses now. is this outside the glue factory? or is the horse back on the farm? >> we are not yet where we want to be. we have 7.5% unemployment we have very little ratio of employment population. the gdp growth has exceeded where we were before the crisis

and we are still well below the trend of growth. that being said, i was struck at the latest meetings of the imf and the g20 in washington. when we talk about a three speed global recovery with the fastest growth taking place in some of the emerging markets like china. the united states is now gratingly from the pack. notably from europe and japan. we have had better performance. in the case of europe it was less than four years ago that the united states had the same unemployment rate. today it is 7.5. so we really have done better than some of these other countries for a variety of reasons. but we are moving in the right

direction. i don't think we can be satisfied, given that we still have unused capacity in the economy. >> he cautioned in your statement there that too much restraint, to quickly, it continues to be the headwind we may not want to get into. but we have addressed our longer-term problems. and then he mentioned that you thought the tenure window might be too short to do that. some of us are looking at something like 30 years. relative to where our growth will be in our debt. particularly the enormous spike in mandatory spending and the impact on that on interest rate and the economy. you have suggested before you have used a lot of tools that the fed has to get get through this time.

ultimately, that responsibility falls here into the administration. we have yet to summon the political will to address our long-term problem. in my case, that begins in earnest in a relatively short time. it makes sense that we address it now as the senator mentioned earlier. you expand a little bit more on that about what you think our responsibility is? because i am starting to hear things like the fed is buying his time. including what congress can overcome. >> the fed is doing what they told him to do. which means maximum employment and price stability. congress needs to take a longer view. the interest rate are today.

and the cbo scores the budget plans out for a decade, it assumes that interest rates will be on the rise. that suggested the economy is coming back to normal. looking at those budget plans, they are higher interest rate and you're going to have to deal with higher interest rates at some point, we hope. i very much support your suggestion of having a longer horizon. i would note the 1983 socials security committee that my predecessor chaired. the reforms that were introduced then are still now being phased in 30 years later. some of these changes make it much easier to achieve. lastly, we were concerned about the amount of interest of return

and the risk-taking reaching for yield. this greeting another potential bubble? there is a vague surge in the market that seems to be not enforced by the underlying fundamentals are in the what is your take on that? we are watching carefully. of course no one can say with certainty what they should be. but at this point, the sense is that major prices by corporate on prices are not inconsistent with the fundamentals. it is very normal in the stock market. in addition, thinking about financial stability come he also have to look at things like leverage and credit growth and other indicators that suggest not only is the pricing going on, but this has the possibility

of greatly damaging the broader financial system. so at this point, it is always dangerous. but arson is that those issues are still relatively moderate. >> we are glad you're doing now. because we do not want repeated. >> enqueue, mr. chairman. >> thank you, mr. chairman. thank you for being here before us. we have had many years when you were part of the economic advisor team. and now as chairman. i know that now you're saying that this is a good idea. i have a question and i would still like to get your idea on something in particular. i remember when the chairman was before us and i talked to him about this.

i talked about the housing market around the time. he called it a particular set of market. and of course, since leaving, i completely missed what was going on. going back to houston. because i think that housing is such an incredible piece of the american budget. the american family budget. the sense of wealth creation. including putting kids through college. this is what i see going on now. a lot of markets in particular are in california. housing prices are going up. everyone is cheering and everything. but what i see is foreign money coming in. money being bought as an investment. things sloughing off large

amounts of homes. and putting them into hedge funds. these funds holding onto these, anticipating that five or 10 years down the road, getting appreciation out of these assets. rent is going through the roof. your average working family, at least where i live, is not able to buy a home because of -- if you will, because of those who have the money to come in and buy the home in return. not for that as we saw in the last speculation housing market. it actually older than a higher rate for rent to the families that are now becoming, unless we change something, permanent

renters. how is the market leading better? not for the middle class, or is this the higher or lower income class. almost chaining them into the inability to find their way to homeownership. so do you see that going on? do people see that going on in the different markets. also, what can congress do to ensure not the other way people who should be tempting to do this in the cycle of i didn't get in. >> just a few comments. first, with prices having fallen 30% with very low mortgage interest rates, affordability is

are the highest it has been in decades. so there are people who can buy now who could not abide under other circumstances. although mortgage lending is tight for people on the lower part of this distribution. ira greve at that. on the right side, many people who have lost homes or otherwise not become home owners, stopping homeowners, they have gone to renting. so it is probably a good market responds that houses that were previously owned are adding supplies and taking pressure and reducing the rent that people have to pay. >> excuse me, mr. chairman. people who had mortgage rates, we know that. a good amount of these people lost their job. that is why they were not able to continue their payments. but in most cases, what i the in

my market are lower mortgage payments that they were making, versus higher rental payments that are now being talked about again because the family is not getting credit for even those who qualify with credit. in particular, with the foreign markets. so what i see for a family unit is a higher cost of housing in what they had prior to this whole problem. >> if you can get a mortgage, which i understand the problem, the payments are lower and the affordability of five. i agree that mortgage lending is still too tight. excessive conservatism on the part of the basis of this. some uncertainty about regulation. there is still work to be done

to clarify this. need for the gse were warm and others. i think that as a the house prices go up, mortgage lending will become a little bit more accessible to a broader range of people. but right now, it is a relatively tight. so i agree with that. >> mr. chairman,. >> thank you, chairman bernanke it. mr. bernanke. quantitative easing on the margin, attending this private debt -- how does this work for deleveraging? >> with low interest rates, we do want people to spend

normally. it is part of what put the economy back to work. on the other hand, here is those factors overall. as you look at the data, it is the leveraged. quite a bit over the past two years. >> is quantitative easing, does it facilitate or promote the accumulation of government that? >> is quantitative easing have regulation and does it make it easier for government who choir a lot of that? >> well, it does keep interest rates a bit lower in the short term. what we are trying to do again is get a stronger economy which

will support higher interest rates going forward. any kind of budgeting process, which we have to take into account that the interest rates will be rising over the next few years, we have to factor that in when we make the budgetary calculations. i am not sure how raising these interest rate prematurely, i don't see how it would be helpful to fiscal policy. i think it's important for congress to look at the five-year or ten-year window and see how interest rates are expected to move. >> extent that quantitative easing hats, it does seem that basically, by way of encouraging can ocean, is and that's where the name of that? >> there is not enough demand in economies.

>> okay. the net equity extraction from home. this increased leverage, a problem where the fed had really prolonged things in the mid- mid-2000. >> there was a lot, including how much was due to the policy, how much was due to lax lending policy,. >> did the excessive leverage, whatever it was caused by, did it tend to exacerbate the prices that rose in 2008? >> yes. >> that the fed identify the weakness in the mid-2000 and react to it? >> we saw this come in this goes back to my discussion with representatives sanchez. we saw the relationship between house prices and rents. they were very high relative to

rent. therefore it was always considered a possibility. the house prices were already coming down. we did not anticipate what would it work for financial institutions. >> these things are hard to anticipate. that can create risks that are, by their very nature, they are difficult to anticipate. they are also difficult to address. excessive leverage can create instability. but as i said, what we are seeing in households and corporations is a lot of deleveraging. stronger balance sheets. more equity in the case of tanks

and firms that we saw prior to the. >> obliquely to the two people who are concerned that we could face a similar price coming up in the 2000. >> well, first, again, the indicator light accent and house prices, they leverage credit growth in all of those input different today than they did before the prices. secondly, there's a lot of reform going on in very bad mortgages were being made. as you know. there has been a considerable amount of tightening up, protecting consumers. there has been an amount of capital and a lot has been done. we certainly have done a lot to make the system more resilient. >> i thank you very much. i think my time has expired.

>> senator toomey is recognized. >> thank you for joining us again. just a quick follow-up in the nature of the various monetary policy. is it true that this matter that this has the tendency to be successful at all. to bring economic activity closer to the present day rather than to increase the total amount of economic activity that occurs over the long run. >> to some extent, that is correct. but we have a situation where homebuilding is well below what can be sustained as a longer term. as we can get back to a normal level. >> i just think it is an important point to consider that the monetary policy is not

really a net growth strategy. it probably has a bigger impact on this total amount. >> you're trying to mitigate the effects, but we can't affect the long-term growth very much. and another point to follow-up is something that the senators alluded to. i think it is clear that virtually everyone we have in residential housing in the last decade, i just worry that this unprecedented policy can manifest at self in unpredictable ways. and we see a surge in the housing prices. agricultural land prices are high. you point out, it points out what an asset ought to be worth.

but it worries me. that this will manifest at self in unpredictable ways. the last point that i would want to raise is you have discussed the general strategy for exiting when that day comes. but always with an implication that there will be this orderly transition. i know that you are aware of this. but i think it is important to underscore that it is hard to predict how the markets will respond when the biggest holder of fixed income securities decide the past to be felled. you may decide you can just let them run off. but that might not be enough. and i just think that there are very significant risk that we are taking by accumulating a portfolio on the scale. would you like to comment on our? >> i do not disagree. this is not easy and the writers good communication. >> i would like to commend you. you have provided more

transparency, more communication than the fed ever provided certainly in recent history. >> i thank you. i guess i would say that there is no risk-free strategy. unemployment is still high. so we could address some of these issues that we have. >> it could suggest that the monetary policy as part of the. >> duke is among market thinks that monetary policy is creating profits and growth. >> following of the comments he made in the past about this provision in dodd-frank, i have let his nation to allow much of that activity to be pushed out into the bank, which i think is a better way for financial institution to be able to use

each thing. the you share that view that it is a good idea to repeal parts of the? >> yes, the federal reserve had concerns about this prior to the enactment of the law. >> last thing i would like to mention is there are 11 minutes that contain notes on this video conference. the processing of federal payments, disruptions to market functioning and the federal reserve's objections, this is in the context of it. including how to deal with this and other things. could you give us a sense of

what that consists of? also what you can tell us about the plans. >> my memory won't be complete, but we looked at our systems and our ability to make payments to principal and interest holders. for the most part we found that we were able to do that with two possible exceptions. saving bonds and a few other things that are not as easily connected to the system. we also had some discussion of the kind of policy that you could have with banks. discount window lending and all kinds of things that are contingency planning in case this were to happen. but we did not do was directly engage the private sector and we

are mostly looking at our internal systems and ability to address whatever directions. we are the agent of the treasury. it is our job to do whatever they tell us to do. working through capacity both as an agent and as managing the payment system. and dealing with a possible default if the debt ceiling was not raised. >> i think my time has expired, i think you, mr. chairman. >> senator bob casey is recognized for five minutes. >> mr. chairman, i thank you. thank you for giving us this opportunity. we are grateful for your presence here with her testimony. i have to say that the work you have done, to deal with a set of economic circumstances that we have rarely faced in american history.

he brought not just a lot of focus, but national greatness. a lot of consensus happens to be bipartisan. we have provided tax code. we have to make it a much more workable tax system for individuals and businesses and all kinds of ways to do that. the hard part is getting incentives in order to move forward. but the good news is, and i don't want to overstate this, but it's important to assert it. is that we have the chairman and the finance committee, last several years, working together individually.

working with the staff to try to tackle this. with mechanics underway in both places. we sit down around a table for at least an hour or more, we go to elements of the tax code. that is the good news. i think we are moving in the right direction. the question i have for you is the basic question. can you give an opinion or ss the impact. i am assuming that it would be possible. i would have to hear about it. the passage of a substantial bipartisan reform. >> i would just make the observation that such a major action, taking the bipartisan basis confidence inspiring. i think that most everybody on both sides of the aisle agrees

that this tax code is complex and distorts decisions in many ways. i think if it were done in a way that simplified it, made it more economically efficient, i think that would be very positive. i hope you and your colleagues to make progress on that. >> is anyone part of the tax code -- a particular significance of the adverse impact it has on the business activity or economic growth? if there is one that you think is particularly difficult to manage? >> at the very difficult problem that you think. most economists would argue that an efficient tax code is one that has a relatively broad-based and low marginal rate. low marginal rates is easy.

it means for strict in the are limiting the deductions and credits. so that is the goal. the political challenges to figure out how to do that. as you know, in the income tax, for example, the biggest deductions are housing, state and local government. health care exemptions, which are all obviously very popular and have their own purposes. finding a way to deal with that issue, i think that is the most challenging part. if you can find ways to broaden this and lower the tax rate. >> we all have the sense that businesses have various measure and a substantial area of

uncertainty. as a one of the tax code, the other is the economy. including what we haven't done. it is my opinion that we can get a bipartisan tax agreement and we can move one element of uncertainty area i know my time is almost expired. thank you, sir. to follow up on mr. casey's question briefly. not only are we here to get bipartisan support, but i hope that we will have this for implementation of our tech. >> thank you, mr. chairman. >> with regard keep this going

with monetary and fiscal policy. you're going to continue to print money, interest rates down, that we should continue to borrow and spend on our end to help the economy. if you look at how much we have spent, we have spent $2.9 trillion. in 2009, during the course of the stimulus bill, we spent $3.5 trillion in so half of the trillion dollar jumped. the testimony today is that the cuts have been two significant and we need to actually spend more in conjunction with the printing.

>> can you explain fiscal year 2008? >> i did not see spending. it includes tax increases and the elimination of the tax cut. it can be a drag on the economy. since the stimulant, the government has talked about it felt pretty interesting way. i am not advocating a major new sales program. but i am saying that the balancing between a somewhat slower tightening in the near term and more aggressive and systematic attempt to address the longer-term and balances where the big problems really are. i think that that would be better. i am not in any way denying the

importance of fiscal responsibility. but is that it's not the way to go about it. >> i would agree with you on that point. but the problem is in this town is that we see the long-term implications of the course we're on. you are well aware of the politics in these two chambers. do you have seen this. talking about the long-term implications and medicare. i think you would agree that that is the director. >> yes. >> health care costs are very important. >> this includes medicare and medicaid. >> we are trying to reform this and make it sustainable. one of the frustrations is we are not able to get the buy-in with others to join in this

effort. it is one thing to say that i don't like the republicans plan. the other side has to put out a plan that makes it sustainable as well. would you not agree? two it makes medicare sustainable long-term. >> both sides should put up plans that make medicare sustainable. correct? >> i don't want to get into negotiations. >> let's talk policy wise. >> from a policy perspective, yes, we want medicare to be this table. >> and we want to sides to make medicare sustainable. is that right? >> there needs to be some bipartisan way of negotiating whatever it is you're going to do area. >> one of my concerns with the testimony. even talk about regulations. i talked to my small business owners, people back in wisconsin, they are concerned about the things he mentioned and the rules, regulations, red tape. the government is getting in their way when we are looking at

expanding and we have someone that is looking at starting the business. rules, regulations, government interference is a problem. i see that as one of the headwinds as well. i wonder if you see that is a concern. >> it is a concern. it is very important. i wonder if these are things that have been in place for a long time. in talking about headwinds, i'm looking at what is specific to the recovery as opposed to longer-term growth issues. >> i know that your time is up in january. >> what you have to say? >> i'm not repaired into question. >> okay. some of us are concerned about the policies that have been implemented on the long-term impact that will take effect the next six months.

they give her testimony. >> thank you, representative terry at you for waiting until the very last moment so that question in. chairman bernanke you, thank you. i think that the fed played a critical role in the financial crisis. i don't know that i agree with the assertion that everything good in the economy, including corporate earnings has occurred because of direct monetary policy. i think the economy is more complex on its own. it is believe at this point in the recovery, while it is very fragile, aside from europe, it is really key to getting this economy going. thank you for being here today.

[inaudible conversations] [inaudible conversations] >> the apple ceo, tim cook, testified on capitol hill this week. saying that his company was saving billions of dollars in u.s. taxes by using irish subsidiary companies. that is next on c-span2. send us a date on the federal budget process. >> president obama is nominated he the next congress secretary to testify at a confirmation hearing tomorrow morning. kenny fisker is a philanthropist and former business executive. live coverage from the congress committee starts at 11:00 a.m. east turn.

>> this is the way that this looks during the presidency of james garfield. this was, indeed, part of the family parlor. james and his wife spent a lot of time with their children. they had lost two children to infancy. the children died before the family could move here. they all have the benefits of having two very intelligent parents who strongly believed in education. both are very important. very important to their parents. the family with the by the fireplace and reach one another. often times out loud. that is one of their favorite activities. in the center of the table has

this award. this is garfield absolutely adored her time at the expedition. she would write pages of what she thought. a lot of people think of this as a very artistic thing. she is so intelligent, she loved the sciences. >> a conversation on mrs. garfield is available on her website. tune in on monday for her next program from c-span2 the features frances cleveland. >> a senate panel released a report showing how these subsidiary companies allow the company to avoid the pain u.s. taxes. they were on capitol hill in questions before a senate subcommittee hearing on investigations. chairman is senator carl levin of michigan.

[inaudible conversations] [inaudible conversations] good morning, everybody. before we begin, i know that we are all heartbroken because of the tragedy in oklahoma. we want those communities and families and individuals who are affected to know that they are not alone. they are not going to face this alone and america mourns with you and we will help you

rebuild. the subcommittee meets today to hold a second hearing to examine how the u.s. based multinational corporations use loopholes in the tax code to move profits to tax havens and avoid paying u.s. taxes. in september, we examined two case studies. the study of how microsoft corporation shifted profits for u.s. customers from the united states to an offshore tax haven. also a study of how hewlett-packard design a foreign loan program to effectively repatriate offshore profits to united states without paying u.s. taxes that are supposed to follow repatriation. today, we will focus on how apple effectively shifts billions of dollars of profits

offshore. profits that under one section of the tax code should nonetheless be subject to u.s. taxes. ..

>> less than the statutory rate of 35%. a recent study found 30 of our largest u.s. multinationals with more than $160 billion of profits paid nothing in federal income taxes over a recent three-year period. these corporations use multiple gulf -- offshore

loopholes to report how much income they have or how much tax they will pay. despite the immense impact of these offshore tax practices that deepen the federal deficit and increase the burden on american families, few americans see the problem because of the complexity. the first dip to changes to a knowledge that there's a problem. today we spotlight corporate offshore tax avoidance so our colleagues, the american people understand the depth of the offshore tax loophole problem and the damage it does to our fiscal and economic health. athol is an american success story. its products are justifiably well known and used throughout the world just like millions around the world i carry negative in my pocket. the company's engineers and designers have it will earn a reputation for creativity but will aim of -- what may

not be will mound they have a highly developed tax avoidance system through which it has amassed more than $100 billion of offshore cash in a tax haven. cenis viable intellectual property rights offshore together with the profits that follow those rates is at the heart of apple's tax avoidance strategy. it is the dominant source of elia -- bell you is also highly mobile. to be transferred often with a few keystrokes. the secret to his business success is not with the aluminum or steel or class of my phone but its profits depend hall -- and a

tradition developed it is due to its further profit generating potential of that viable intellectual property offshore so that the process -- profits are directed not to the united states but to the offshore tax haven. apple's tax avoidance strategy comes in two parts. first executes a shift of the profit generating power of the intellectual property to the offshore tax haven was directing the resulting income to the tax haven. and of course, to the corporations in the tax haven. it uses the number of tactics to ensure once the income is onshore, it remains shielded from the u.s. taxes despite

provisions to the u.s. tax law which are designed for

the last five years. >> host: pays the fraction of 1% of the total in. -- in, the first is appell operations international. and in this chart which we will put up over here shows the offshore corporate network. aoi is at the top of the structure and appell is the sole owner and aoi indirectly bones most of the other offshore entities. under irish law of the company's managing controlled in ireland are

considered irish wasn't saugh plug negative residence but apple says aoi is not managed and controlled in ireland and therefore is not a tax president of ireland. u.s. tax law on the other hand, is where the company is incorporated not managed and controlled. appell says since aoi is now incorporated in the united states is also not present in the united states for tax purposes is neither here nor there magically. the second corporate coast is sales international. asi holds the economic rights to the valuable intellectual property in europe, middle east, africa east, africa, india

it, asia, through 2009 through 2012 the income amounted at $74 billion. apple has performed the same alchemy with asi as aoi inc. in ireland and operated in the united states but apple says it is a tax resident of neither country. unlike aoi, asi has paid a small amount of tax to ireland in 2011, it paid $10 million of taxes on $22 billion of income. that is a tax rate of 500 some of 1% and it appears this tiny tax payment may be related to activity and related to asi main purpose to serve as a receptacle for profits generated by apple's intellectual property in much of the world.

apple has told the subcommittee a third subsidiary apple operations in europe, a aoe, also has no tax home. using the same claims of standards on residency. cavalier is exploiting the absurdity that we have not seen other companies use it need not continue of the united states generative looks to where the entity is inc. to determine the tax residency it is possible to penetrate the entities corporate structure for tax purposes and to collect u.s. taxes, and not in kind if it is controlled by the u.s. parent to such a degree that the shell is nothing more than the instrumentality, a sham. they should be treated as the parent themselves rather than a separate legal

entity. aoi, asi, aoe all share that description. aoi has no owner but apple. it has no physical presence at any address, 30 years of existence aoi has never had employees, the general ledger the major accounting record maintained at the u.s. service center in austin, texas. aoi finances managed by raborn capital and apple ink subsidiary of nevada and the assets are held in a bank account in new york. it shows the board minutes that it is consistent with two employees who live in california and one irish employee from met irish company that aoi owns. over the last six years 2006

through the end of 2012, aoi had 33 board meetings, 32 of which took place in cupertino california. aoi known irish president director only participated in seven, six by telephone and in and of those 18 board meetings 32012. prior to 2012, asi had no employees and carry out operations through the action of u.s.-based border directors, most of no more apple employees from california. asi 33 board meetings comment made 2006 through march 2012, all 33 to place in california. insured these decision makers, a board

makers, assets and accounting records are all in the united states and their activities are in tear of the controlled by apple ink in the united states. the tax director a knowledge to the subcommittee staff that it was his opinion that it is functionally managed and controlled in the united states. circumstances with asi and aoe appeared to be similar to our legal system has a preference to respect to the corporate form but the facts present the issue that these offshore corporations are totally controlled by apple that the identity of separate companies is a sham and a mere instrumentality of the parent and if so whether apple's claim that aoi and asi shows no u.s. taxes is a sham as well. aoi is the a pact -- apex of the tax avoidance strategy in the claims the other

subsidiaries are not a tax residents of any nation and the key element and strategy to avoid taxes of the offshore in, but how does that income and a cocksure to begin with? that brings us to a second more common arrangement to shift away from the united states to the low tax jurisdiction what is called transfer pricing. many u.s. companies used is racing to shift intellectual property rights to offshore affiliate's and then it is associated with intellectual property of taxable income to flow to the united states for intellectual property and where was developed. but the affiliate's home jurisdiction which is typically a tax haven. but their way to transfer those offshore but the primary benefit is through the so-called cost sharing

agreements for implied to new products in the case of apple are developed here in the united states. apple remains retains legal title in all marketing rights to the developer's property for north and south america and the offshore marketing rights for the rest of the world. that is a key part of the so-called cost sharing agreement it is more than sharing the cost but also the offshore affiliate's for the marketing rights in the profits for the rest of the world. apple said that those cost sharing with subsidiaries i

use that with skepticism since it is not the arm's length transaction. of many suppose of the changing hands all were apple employees and on the face it allocates the cost to be shared among the apple companies but since those cost come out of the same pocket, in reality the agreement is about shifting products. the cost sharing agreement enables apple to a shift profits generated by its intellectual property away from the united states where the internet -- the intellectual property was developed to concentrate the light and share of profits from most of the world to apple's subsidiary in ireland. the intellectual property that generates the profits was created in the united states when most of the profits were first assigned

to ireland. its own successful strategy is that apple is quietly negotiating with the irish government the income tax rates of less than 2% will under the irish statutory rate of 12% as well as the tax rates of other european countries of the united states and will below those rates. as we have seen in practice practice, apple can pay a rate far below even that will figure in 2012 alone due to a cost sharing agreement shifting profits of all apple sales outside of the americas to ireland ireland, asi received $36 billion of income in a nation where pays almost all no income tax. have a cost sharing agreement functions with a

shifting profits offshore to avoid u.s. taxes first the transfer of intellectual property rights through the cost sharing agreement is not needed for apple to conduct its commercial operations. it operates in numerous countries around the world without transferring an intellectual property rights to each region or country and when interviewed apple officials could not explain why asi needed to acquire apple intellectual property economic rights in order to conduct business abroad. and as all parties are identical the renewed the agreement several times most recently in 2009 to modify the agreement at any time. further evidence this is not in any sense an arm's-length transaction. second, 95 percent is the engine it's behind the

success of apple products conducted in the united states. the figures provided by apple show over a four year period from 2009 through 2012 is asi paid $5 billion to apple, inc. as its share of the r&d costs. over the same period asi had profits of $74 billion. the difference between asi cost of their profits come almost $70 billion, how much taxable income in the absence of the apple, inc. kashering agreement with other tax loopholes which have flowed to the united states. in comparison over the same for years apple, inc. paid $4 billion under the cost sharing agreement to declare profits of $38 billion the

subsidiary asi received almost twice the profits for property develop a by a apple, inc.. common sense says apple never would have offered such a lucrative arrangement of the arm's length to deal with the unrelated party. it is hard to imagine that apple offers such a lucrative deal to an outside party at any price. the fact that irish subsidiaries share the cost is irrelevant with the main goal. just concentrating profits offshore. even if the irish subsidiaries pay 100% of r&d costs, this arrangement would still result of massive profit concentration in a tax haven and there for massive tax avoidance.

the cost sharing agreement begin the offshore journey they keep them shielded from taxes and they exploit the loopholes to protect the offshore income to be taxed as part of the tax code known as sub part of design to combat profit shifting by u.s. multinationals to collect taxes on some of the income even when held offshore. it is said kennedy era attempt to combat rampant offshore aviation and make certain types certain part of income-tax even when not brought back to the united states including funds transferred between offshore affiliate's with dividends and interest but in the

1990's the treasury department unwittingly opened a massive loophole of sub part-f and approved a regulation known as check the box that allows companies to declare to the irs what type of entity they are for tax purposes, simply by checking a box on the form. under check the box box, multinationals began to you declare offshore subsidiaries as disregarded for tax purposes making it appear it is a complex change of offshore entities were one big operation that made the funds being transferred nontaxable under sub part-f and a circumvention became easier when in 2006 congress passed the looks through rule which shields offshore income from taxation under sub part-f.

apple is one among multinationals and strategies are complex and airline to more fully but the net effect is huge and apple argues it is with the biggest corporate taxpayers in america and in 2000 alone it paid $6 billion of taxes. what apple does not say is that also in 2012 it shifted 36 billion buyers -- dollars of worldwide sales and come and pays no u.s. tax on any of it to. the data provided by apple indicates that to the cost sharing agreement and check the box that in 2012 alone, apple avoided the

payment of $9 billion of u.s. taxes. that works out to avoiding $25 million that more than $1 million per hour in taxes out all the executives want people to focus of the taxes it has paid but the real issue is the billions of taxes it has not paid things do the purpose is tax avoidance, pure and simple today we will ask apple executives as well as officials about the tax avoidance strategies as a listen we should keep in mind the context the tactics spotlighted by the subcommittee do real harm to u.s. companies that are not

and a position to reduce the tax bills and it uploads the tax burden onto other taxpayers under working families and it feeds the budget deficit. it leads to round after round of the sequestration threatening their economic recover -- recovery. so they will not get any of the education from headstart for they will go without meals or fighter jets, and because the military to keep them trained and apple exploits tax loopholes depend on the safety, security and stability provided by the united states government and this nation. the economic existence depends on u.s. government energetic protection of the

intellectual property which they developed to keep under the protection of the u.s. legal system while shifting the incoming generates over sees. nearly 30 years ago, ronald reagan faced a tax system severally open to exploitation and loopholes and of president reagan treasury secretary told them that the profitable companies paid no income tax president reagan was stunned armed with that information information, he went before the american people to decry "individuals incorporations who are not paying their fair share or any share and said "these abuses cannot be tolerated. and he did not tolerate them. the question we should teach ask is should we close the unjustified tax loopholes to dedicate the revenue to

protect the nation and reducing deficits closing these kinds of unjustified the polls to provide hundreds of billions of dollars to reduce the deficit to avert the imaging budget cuts to our defense, roads, schools, a safety of food supply and we should close these loopholes and dedicates the revenue it generates to these other important priority is whether or not we reform the overall tax code. senator mccain and his staff have made an extraordinary contribution to the bipartisan effort and i thank them for their brickwork for your partnership senator mccain on this subcommittee. thank you. >> thank you, mr. chairman i

want to thank our witnesses who are here today professor at stephen shay also to the government witnesses and the two executives who are here to defend the position and will listen very carefully to the testimony. and they make it very clear the admiration may hold for apple, the incredible changes with the spread of information to share information and knowledge drop the world has been phenomenal by a mr. cook and mr. jobs but the corporate

strategy shows a flawed system and it is a system to allow an edge -- to allow multinational corporations to shift offshore aid for years it has not contributed to the treasury into american society by shifting profits to circumvent profits and the last four years alone it has avoided paying taxes of $44 million of the incumbent with over 145 million cash unhanded ranks has of the largest multinational corporations in the world and apple to executives in jury reminding the public is accompanied is likely the largest corporation of corporate taxpayer in the united states but the same executives failed to mention that apple is one of the biggest tax avoiders in america. today has over 100 billion

over two-thirds of the profits stashed away in the offshore accounts those that are not subject to u.s. corporate income tax and therefore cannot be used for the deficit or reinvigorate this same economy that foster the creation of this large corporation in the first place. the shadow of sequestration that encourages and hardworking american families it is unacceptable for corporations like apple to exploit tax loopholes that apple's corporate tax strategy is it allows them to shift dollars into these subsidiaries without paying taxes. all of apple is an american it currently retains the

bulk of the profits. the subcommittee investigation has uncovered a disturbing trend the three primary irish entities hold 60 percent of the company's profits but when claimed to be taxed residents no lawyer in the world is complete lee outrages and has charged full payment of taxes but avoid paying taxes around the world through the convoluted and pernicious strategies. . .